Jim Cramer's Mad Money, 10/9/07: Methods of Cramer's Madness

Stocks discussed in the in-depth session of Jim Cramer’s Mad Money TV program,
Tuesday October 9.
Click on a stock ticker for more analysis:

Note: Tuesday's Mad Money Program was a re-broadcast of a show that first aired on June 19, 2007

Cramer's Top Five Investment
Tricks

Cramer devoted Tuesday's Mad Money program to discussed five
"methods to his madness."

1. Watch the New High List

Many of the stocks that become Cramer's top picks are taken
from the new high list. However, he doesn't just copy the list, but waits for
the stocks to pull back and does research on the companies. Whether the names
are part of a general bull market or are individual companies with merit, the
stocks on this list usually go higher, according to Cramer. He warned investors
not to wait for just any pullback, but to make sure the stock didn't pull back
for a good reason.

2. Insider buying and a 52-Week
High

Insider buying of a stock that has reached its 52-week high
is a bullish sign, because it shows that investors do not believe there will be
a pullback. Although not all insider buying is necessarily worthy of note, and
sometimes it can be a confidence game, but when insider buying is "truly
colossal," and the stock has already moved, it is time to pay attention.

3. Insider Buying and a Heavy Short
Position

Insider buying and a heavy short position is also a sign to
invest, because it signals a short squeeze , or a turn of the tide when the
shorts start buying to protect themselves. While shorts may be smart, they do
not know more about a company than its management, said Cramer,

4. Trading around a Core
Position

"Find a stock that you believe will be going higher over the
long term," Cramer said. Such stocks may go up and down on market volatility,
but are slowly headed up. For those who own 300 shares of a $100 stock as a
trade, Cramer recommneds selling 50 shares every time the stock rises 3%,
shaving some off to bring in profts. Then, as the stock goes down, Cramer
suggests buying it back in increments, purchasing 50 shares every time it falls
3%. Cramer urged investors not to own less than 100 shares and not more than
300; "The basic idea is to avoid putting yourself in a position where you have
too much on the table in case the stock gets swatted down, or too little on the
table to take advantage of any upside that comes your way," he said.

5. The Inevitable Implosion of Hot
Stocks

Cramer defines "hot" stocks as small stocks which rise fast,
have little research and sparse analyst coverage. The time to jump off the
bandwagon is when four analysts are covering the stock. He used Hansen Natural as a hot stock which finally fell last
summer after it was covered by its fatal fourth analyst from Goldman Sachs.